On September 19, 2014, the Supreme Court of Canada (the “SCC”) released its long-awaited decision in Bank of Montreal v. Marcotte and two companion cases (Amex Bank of Canada v. Adams and Marcotte v. Fédération des caisses Desjardins du Québec). Significantly, the SCC unanimously ruled that the Québec Consumer Protection Act (the “Act”) applies to federally regulated financial institutions. The cases addressed the application of federal and provincial legislation to credit card activities of banks and, in the latter case, a Québec financial services cooperative. The SCC confirmed that that the financial institutions could not look solely to the application of cost of credit disclosure requirements of federal law and, significantly, that the Act applies to the credit card activities of banks.
In 2003, three class actions were launched against several Canadian chartered banks and Desjardins, all issuers of credit cards. The representative plaintiffs, a number of Québec resident consumers, sought repayment of foreign exchange conversion charges imposed by the credit card issuers on purchases made by consumers in foreign currencies.
Banks Submitted That Federal Banking Law Trumps Provincial Consumer Protection Legislation
At issue were the provisions of the Act relating to, amongst other things, certain content, calculations and disclosure requirements with respect to foreign exchange conversion fees. The SCC had to determine if the provisions applied to federally regulated banks. The banks argued that the Act had no application to them because the Constitution Act, 1867 gives the federal government exclusive legislative jurisdiction over banking.
The banks submitted that the cost of credit disclosure requirements of the Act were inoperative vis-à-vis the banks’ foreign currency conversion charges on credit card purchases as a result of the constitutional doctrines of federal paramountcy and interjurisdictional immunity. Under the doctrine of federal paramountcy, where there is a conflict between provincial and federal law covering the same or a similar matter, the federal law will prevail and the provincial law is rendered inoperative to the extent of the conflict. Interjurisdictional immunity addresses the effect of legislation at one level of government trenching on a core matter that is within the jurisdiction of another level of government.
The SCC concluded that the doctrine of interjurisdictional immunity was not applicable. The SCC affirmed that the federal government maintains exclusive jurisdiction over banking, but disagreed with the banks that the application of the applicable provisions of the Act to the banks would impair this banking power. The disclosure requirement under the Act was observed to affect but not limit the activities of the banks. The SCC said that even if foreign exchange conversion is a key element of the federal banking power, the required disclosure did not impair the activities of the banks. The banks were still able to proceed with their activities in the ordinary course, such as lending money and converting currency.
The doctrine of federal paramountcy was also held to be inapplicable. In invoking the doctrine of federal paramountcy, the burden fell on the banks to prove that the Act was incompatible with the federal banking legislation, either by inability to comply with both laws or by the provincial law frustrating the purpose of the federal law. The SCC determined that the Act did not frustrate the purpose of federal legislation, as duplication alone is not enough to trigger the doctrine of federal paramountcy. The SCC held that both federal and provincial legislation is applicable to disclosure of foreign exchange conversion fees. Additionally, the SCC found the provisions of the Act dealing with foreign exchange conversion are the contractual norm in Québec. Under the Act, businesses must disclose all fees and costs to consumers.
The SCC concluded that the financial institutions were subject to the Act and upheld the lower courts’ findings that some of the federally regulated financial institutions had not satisfied the provincial disclosure requirements under the Act for a period of time. In some instances, the SCC required repayment of the foreign exchange conversion fees and awarded punitive damages to the affected consumers. Some of the institutions were not required to make repayment or pay damages due to the terms of their cardholder agreements.
Effect on Banks and Other Federally Regulated Financial Institutions
The Marcotte and Adams decisions are landmark cases insofar as they address the interaction between federal banking legislation and provincial consumer protection legislation. While the SCC confirmed that the exclusive federal jurisdiction over banking falls under the purview of the federal government, it also confirmed that it does not necessarily trump provincial consumer protection laws. As a result, in certain circumstances, provincial consumer protection legislation will apply to the activities of banks and other federally regulated financial institutions.
Practically speaking, this case will likely lead all federally regulated issuers of credit cards to review their disclosure of foreign currency conversion charges, and trigger an internal review by banks to ensure that due regard is paid to applicable or possibly applicable provincial laws, including the vastly diverse area of consumer protection.